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Kay’s Cuts: Supply bedevils US cattle prices

Steve Kay, 07/10/2021

A monthly column written for Beef Central by US meat and livestock commentator, Steve Kay, publisher of US Cattle Buyers Weekly

 

 

 

 

CATTLE feeders in the United States continue to struggle to reduce the number of cattle on feed 150 days or more (known as the front-end supply). The supply, record large in June last year, continues to stifle grain-fed cattle prices. Analysts only a month ago had forecast the supply would have declined by October 1 to be below the supply two years ago. Comparisons with 2020 numbers are not valid because of the impact last year of the COVID-19 pandemic on placements and marketings.

However, disappointing feedlot marketings this August and likely last month as well have kept the front-end supply above 2019 levels. This has continued to suppress any meaningful advance in cash prices all year. Prices traded in a narrow range of US$118-122 per cwt live all spring, then eventually rallied to a weekly high (so far this year) of US$127.51 per cwt the second week of September. But they have fallen since then and averaged only US$122-124 per cwt last week.

Supplies of market-ready cattle thus remain ample. In addition, packers throughout September drew heavily on cattle previously committed by their cattle suppliers. This resulted in a much smaller negotiated cash trade than normal. The four weeks up to September 18 saw only 211,344 head or an average 52,836 head reported sold in USDA’s 5-area reporting region. The same four weeks saw 1.955 million fed steers and heifers processed. So the 5-area total was only 10.8% of the steer and heifer slaughter total.

Confirmation that marketings fell behind in August came in USDA’s latest monthly Cattle on Feed (COF) report. Despite one additional marketing day this year versus last year, marketings at 1.885 million head were 99.6% of a year ago. They were only 95% of a year ago if one takes into account the extra day. August placements at 2.104 million head were 2.3% above a year ago. This meant the September 1 COF total of 11.234 million head was the second highest September 1 total since USDA’s data series began in 1996.

The August marketing rate (marketings versus the COF total) was only 17.0%, says analyst Andrew Gottschalk of HedgersEdge.com. This compared with the previous five-year average rate of 17.7%. While this might seem to be a trivial difference, it amounted to a staggering marketing shortfall of 77,500 head during August. This served two results, both disappointing, he says. First, it carried more market-ready cattle into September. Second, it deferred and limited the benefit of a seasonally declining front-end supply.

The number of cattle on feed 150 days or more on October 1 was 2.223 million head, says Gottschalk. This was 122,000 head or 5.8% above the October 1, 2019 total. It was also 17% above the 2015-2019 five-year average. Gottschalk now calculates that the supply on November 1 will be 100% of the 2019 supply and on December 1 98% of the 2019 supply. The drawdown in front-end supplies is making progress, albeit at a slower pace than previously projected. Labor issues resulting from COVID-19 continue to limit weekly harvest capacity, he says.

Demand becoming a ‘victim of its own strength’

Meanwhile, demand at home and abroad for US beef is starting to become a victim of its own strength. August retail beef prices set new record highs in August and did so again in September. Prices are not likely to peak until this month. Consumers are already suffering sticker shock at the meat case in supermarkets and have turned to buying more minced (ground) beef and pork because they are much cheaper than a steak.

Adorning the Christmas dinner table with a succulent beef rib roast is a longstanding tradition for American meat lovers. But they might have to forego this hugely popular holiday item this year for a lower-priced cut. This is because wholesale rib prices last month hit record highs and might not decline enough to avoid substitution by other beef items.

There tends to be large increases in retail feature activity on ribs in front of the Thanksgiving holiday (November 25 this year), as measured by store ad counts and even larger activity heading into Christmas and New Year, say analysts. More than half the store ad counts are for bone-in rib roasts, followed by bone-in rib steaks and boneless ribeye steaks or roasts. Over the past five years, the average retail feature price on bone-in rib roasts for Thanksgiving ads has been in the area of US$8.10 per pound to US$8.45 per pound. Average feature prices for Christmas have ranged from near US$7 per pound to US$7.45 per pound, say analysts.

However, with Choice 109E rib prices recently at record levels near US$1,350 per cwt, retailers are looking at the potential of serious negative margins on rib features this fall, say analysts. Even if ribs do moderate from their record levels, there remains the question of how much upward adjustment in retail feature prices might occur and how that might affect the movement of ribs through those feature periods. Some retailers may look at partial substitution of lower-priced loin steaks to moderate margin losses on beef in these holiday periods, say analysts.

 

 

 

 

 

 

 

 

 

 

 

 

 

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